Morgan Stanley Says Amazon Shares Will Surge Further Thanks to Prime
Analysts on Wall Street have consistently kept a close eye on Amazon.com Inc.'s Prime Membership offering, and while some estimates indicate more than 35 percent of households in the U.S. use the service there appears to be much more room to run.
"Our AlphaWise data show that Amazon's Prime subscribers continue ramping," a team at Morgan Stanley led by Brian Womak wrote in a recent note, in which the analysts boost their 12-month price target for the shares to $950 from $800. That suggests they could rise over $100 from where they currently trade, at just over $837 by 8:54 a.m. ET.
The analysts go on to estimate that the number of subscribers to the service grew 28 percent between October 2015 through May of this year. "In all, we estimate that there are 60 million global Prime subs," they add, with 41 million of them in the U.S.
Amazon itself does not disclose numbers of Prime subscribers, leading Wall Street analysts to obtain estimates through surveys. Late last month, Cowen Group, Inc. said that it believes there are around 49 million in the U.S. alone, 8 million higher than Morgan Stanley's estimate. Still, according to Cowen the U.S. market alone has the potential to reach 60 million households.
Growth in Prime membership will be key for Amazon, as analysts' surveys have also found that Prime members tend to spend far more through the platform than non-subscribers. Morgan Stanley found that 40 percent of members spend more than $1,000 on Amazon each year.
Given their impact on revenue, Amazon continuously tries to add features to incentivise new Prime subscribers, and keep the old ones happy. Earlier today, it announced that it's adding thousands of books, magazines and other forms of reading material to the service for free. Membership now includes features such as free two-day shipping.
Morgan Stanley's Womak asked survey participants to name their main driver for purchasing Prime membership, and the answer varied between countries. The U.S., France and Japan were driven by fast and cheap shipping, while the U.K. was largely attracted by video features.
Nearly all analysts on Wall Street are bullish on the stock despite the massive gains seen over the past five years. Cowen and Morgan Stanley both expect shares to rise more than 13 percent over the next twelve months, but theirs aren't even the highest price targets. The average is $905, with JPMorgan Chase and Co., RBC Capital Markets LLC and Sanford C. Bernstein & Co., LLC all expecting shares to hit $1,000 within that time frame.